Police scrutinise Labour's top-secret loan documents

Sources close to the Metropolitan Police inquiry say investigators are scrutinising the loan agreements to see if the loans were on commercial terms.

The papers are believed to have been handed over after a request by Scotland Yard. The police want to see if the Prime Minister offered peerages to donors who gave the party a favourable deal.

Sir David Garrard, a property millionaire, Barry Townsley, a banker, the Priory clinic founder Chai Patel and the curry manufacturer Sir Gulam Noon have all been asked about the loans by the police in one-to-one interviews.

The scrutiny will increase pressure on Mr Blair, whose reputation has been tarnished by the cash-for-honours affair.

All four nominations were blocked by the Lords Appointments Commission, and their names were withdrawn.

Yesterday, Lord Oakeshott, a member of the Liberal Democrats' Treasury team, said he doubted the loans had been made on commercial terms. He said Labour's credit was so poor it would have been hard to get similar loans from a bank.

"The million-pound question is, if the Labour party could have got a loan on commercial terms from a bank, why on earth didn't they," he said.